Renters Rejoice

Yes, renters may rejoice. Last year the Colorado Court of Appeals ruled that a bond posted on a public construction project did not cover rental payments due for rental equipment leased to the project contractor. C.P.S. Distributors, Inc. v. Federal Ins. Co., 685 P.2d 783 (Colo. App. 1984).

The bond in question was posted pursuant to the Colorado state statute which requires bonds to assure payment for “labor, materials, team hire, sustenance, provisions, provender or other supplies used or consumed…in the performance of the work….”

Noticeably absent from the quoted statutory language is any mention of rental equipment (unless “team” would be given to mean up-to-date construction to include equipment). For that reason the Colorado Court of Appeals ruled that equipment rentals were not covered by the bond.

But the Colorado legislature decided that equipment rentals should be covered under public contractors’ bonds. Accordingly, the legislature amended the statute by adding equipment rentals to the bond coverage.Therefore, firms which have rented equipment for use in construction work to contractors or their subcontractors after May of 1985 may recover against Colorado public contractors’ bonds for unpaid equipment rental charges.

However, rental firms should be careful to determine what specific job the equipment will be used on at the time the rental arrangement is made. They should further monitor the use of their equipment on that particular project so that, if necessary, they will be able to prove that the equipment was actually used on the project and the length of time it was used.

Rental companies may not be able to recover for idle time, particularly if the equipment is not used for long periods of time.

Also, it should be noted that some equipment leases have been determined not to be leases at all but sale-on-credit arrangements or “disguised security arrangements”-where the real transaction involves a sale but the contract is worded to make it appear to be a lease for tax or other purposes.

________ ____________ _______________ 1 Sections 38-26-105 and 38-26-106, Colorado Revised Statutes.

F-44 This type of arrangement is usually detected when the legal papers provide that at the end of the lease term the lessee has the option to purchase the equipment for a very nominal sum.

Note that this new law on public contractor bond coverage applies only to construction projects involving over $50,000 in dollar amount for Colorado counties, municipalities and school districts, according to the statute-and a hospital district, according to a court decision. This bond law is under the Colorado counterpart of the federal ‘`Miller Act” and is sometimes referred to as the “Colorado Little Miller Act.”

Good luck, renters.